Apollo to Pay $53 Million Over Claims It Misled Investors

Matt Robinson and Devin Banerjee | Aug 23, 2016

(Bloomberg) -- Apollo Global Management LLC will pay $52.7 million to settle allegations that it made misleading disclosures about fees and didn’t prevent a senior partner from charging personal expenses to clients, becoming the latest company sanctioned in an industrywide sweep into whether private equity firms put their own interests ahead of investors.

Four fund advisers affiliated with Apollo failed to adequately disclose lump-sum payments it expects to receive from the sale of portfolio companies, the U.S. Securities and Exchange Commission said in a statement Tuesday. That reduced amounts available for distribution to fund investors, the SEC said. New York-based Apollo, which didn’t admit or deny wrongdoing, agreed to pay a $12.5 million penalty and about $40 million in disgorgement and interest.

Wall Street’s top cop has made policing private equity fees a priority. Blackstone Group LP and KKR & Co. were both fined last year by the regulator over how they informed investors of fund costs. The agency has focused on what’s known as accelerated monitoring fees, which firms charge the companies they own for services like advisory and legal work. The practice lowers the value of portfolio companies, which reduces potential profits available to clients.

“A common theme in our recent enforcement actions against private equity firms is their failure to properly disclose fees and conflicts of interest to fund investors,” Andrew J. Ceresney, head of the SEC’s division of enforcement, said in the statement.

Caught Twice

The former senior partner, whom the SEC didn’t name, was caught twice for improperly charging personal expenses to Apollo funds and portfolio companies from January 2010 through June 2013, according to the agency. With only repayment and a verbal reprimand as punishment, Apollo failed to find other instances where the partner saddled the fund with personal expenses. A firm-wide review led to the discovery of the additional charges, which resulted in the partner’s January 2014 departure from the firm.

“Apollo seeks to act appropriately and in the best interest of the funds it manages at all times,” Eric Kuo, an outside spokesman for Apollo, said in an e-mailed statement. “Long before the SEC inquiry began, Apollo had enhanced its disclosure and compliance relating to these matters.”